Cable Operators

Cablevision Follows Pack

3/01/2009 8:06 AM Eastern

The cable-operator earnings season came to a close last week with Cablevision Systems reporting a mixed fourth quarter — revenue at its cable business was up 7% in the period, but adjusted operating cash-flow growth was a bit sluggish at 4%, impacted primarily by its decision last year to shutter its Voom HDTV programming service.

Cablevision, on Feb. 26, was the last major publicly traded cable operator to report fourth-quarter results — following Time Warner Cable, Comcast and Mediacom Communications, which each reported revenue and cash flow increases of around 8% in the period.

Mediacom also said it expected free cash flow — cash flow after interest payments and capital expenditures are made — to grow more than tenfold this year, to $1 per share ($67 million).

Charter Communications has not officially reported its quarterly earnings yet — it expects to file for Chapter 11 reorganization by April 1 — but has issued preliminary results with revenue and cash flow expected to grow 7% and 10%, respectively.

Like its peers, Cablevision's results were mixed. Cable revenue was $1.3 billion and adjusted operating cash flow was $498.1 million. For the year, cable revenue was up 9.1% to $5 billion and AOCF increased 10.7%, to $2 billion. For the full year, free cash flow more than tripled to $507 million from $158 million in 2007.

The New York-centric operator lost about 3,800 basic subscribers in the quarter, well outpacing analyst consensus estimates of 12,000 basic losses. But it fell short on some other key subscriber metrics — digital customers were up 22,800; high-speed data subscribers increased by 28,200 (versus consensus of 31,000 additions) and digital phone customers rose 53,400 (versus consensus of 56,000 additions).

On a conference call with analysts, Cablevision chief operating officer Tom Rutledge blamed the lower cash-flow growth on two factors: the December shutdown of Voom and the sluggish economy.

“Voom was not in the plan for the fourth quarter,” Rutledge said. “We decided to keep these costs in because we kept the service on. These costs were unplanned and exceeded the prior fourth quarter of 2007, when Voom costs were in at substantially lower rates.”

Cablevision said it took a $41 million impairment charge in the quarter as a result of the Voom shutdown.

Analysts were split on the quarterly performance, although all were impressed by the free-cash-flow growth.

Miller Tabak media analyst David Joyce said that while Cablevision missed his estimates slightly, he did not expect it to have a long-term material impact.

Sanford Bernstein cable and satellite analyst Craig Moffett said the results were in line with expectations, but he was most impressed by the free-cash-flow yield, which he estimated to be 14% on 2008 AOCF and 20% on estimated 2009 AOCF.

“Cablevision's just-reported results are a stark reminder that Cablevision is still decidedly a 'growth' franchise, at least on trailing metrics,” Moffett wrote in a research note. “Indeed, as the macro economy has contracted around it, Cablevision's growth rates — for revenues, EBITDA, free cash flow and even good old-fashioned earnings — look remarkable.”

Cablevision continues to differentiate itself against telco and satellite competitors. Its high-speed Wi-Fi wireless data network buildout is about one-third completed — the next market launched will be in New Jersey — and an announcement on a new DOCSIS 3.0 “wideband” high-speed Internet product, primarily targeted at business customers, should be coming soon.

Rutledge said the wideband rollout is considered more of a long-term strategic move that won't have a significant impact on second half results.

Cablevision's stock price dipped slightly (6 cents) on Feb. 26, to $13.31.

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